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FEMA's sale of Katrina trailers sparks criticism

By Spencer S. Hsu
Saturday, March 13, 2010; A01

In a giant auction, the federal government has agreed to sell for pennies on the dollar most of the 120,000 formaldehyde-tainted trailers it bought nearly five years ago for Hurricane Katrina victims. But the sale of the units, perhaps the most visible symbol of the government's bungled response to the hurricane, has triggered a new round of charges that it is endangering future buyers for years to come.

Consumer advocates and environmentalists are outraged that the government resold products it deemed unsafe to live in, saying warning stickers attached to the units will not keep people from misusing them.

Besides formaldehyde, units might be plagued by mold, mildew and propane gas leaks, FEMA acknowledged.

"Proceed with caution, extreme caution, if you are tempted to respond to what appears to be an attractive offer for a travel trailer or manufactured home," Arkansas Attorney General Dustin McDaniel wrote in a consumer alert. He and others cautioned that the FEMA units could be resold many times, including over the Internet, and that unscrupulous sellers could remove warning labels or withhold information about the dangers.

This year, for example, building inspectors in Missouri discovered damaged FEMA units sold as scrap in a Fenton, Mo., mobile home park. The units were billed as housing even though their paperwork specified they were not to be occupied.

"What if Toyota ordered a recall, then simply put a sticker on its vehicles saying they were unfit to drive before reselling them?" said Becky Gillette, a spokeswoman for the Sierra Club in Mississippi, which helped uncover the formaldehyde problem. "There's a double standard for the government."

The sale of the units will be completed by April 3, pending an antitrust review by the Justice Department, which has rarely reversed government auctions. In the meantime, the sale has drawn criticism from lawmakers upset about the loss of taxpayer dollars and from industry groups that say the fire sale is hurting their business.

FEMA officials defended the sale, noting that Congress has complained that the government has spent $220 million over three years to store vacant units. Wholesale buyers from the auction must sign contracts attesting that trailers will not be used, sold or advertised as housing, they said, and that trailers will carry a sticker saying, "Not to be used for housing."

Officials said that although formaldehyde could still be present in some units, they would be safe for occasional recreational use rather than round-the-clock living. They also say that, because most units are in such poor condition, people will not choose to live in them.

"I'm certainly hopeful we're approaching the end of the story for the Katrina units, which we have been maintaining in the hundreds and thousands of units, at the expense of taxpayers," said FEMA Associate Deputy Administrator David Garratt. "I'm hopeful we can reduce the inventory of units which we can no longer use, and actively maintain the units we can use in actual disasters."

But Marty Horine, a retired teacher from Clinton, Mo., cannot relate to FEMA's decision to resell flawed units. In summer 2007, days before congressional hearings publicized the formaldehyde problems, Horine paid about $6,000 for a 32-foot Gulfstream Cavalier FEMA trailer for her son to live in. Now she doesn't want him in it, but she worries that selling it "would be nothing but being mean to the next person."

"This is like history repeating itself," Horine said. "People are all going to buy them, move into them and then start getting sick."

FEMA's sale of nearly 93,000 towable trailers and more than 9,300 pad-mounted mobile homes drew high bids totaling $133 million, or about 7 cents on the dollar compared with what the government paid. The units were bundled into 11 huge lots and sold on Jan. 29 to bidders, whose identities have not been announced.

The decision to sell them in bulk, critics said, will glut a depressed market and keep them from being sold to individuals or donated to public agencies who could use them for storage or office space. It was also a bad business deal, some said, benefiting middlemen rather than the government.

"Taxpayers only lose in this scenario," said Rep. Mike Ross (D-Ark.), who on Friday called for congressional hearings into the auction.

The sale marks a fittingly contentious end to the federal government's ill-fated effort to house hurricane victims.

After Katrina displaced 770,000 Gulf Coast residents, the federal government embarked on what watchdog groups dubbed a "hurricane of waste." Lacking plans and contracting experts, FEMA spent $2.7 billion on 145,000 trailers and mobile homes. Many of the mobile homes, it turned out, could not be placed near the coast, under FEMA's own rules.

The agency rushed production of the trailers, with few safety specifications. Then, over nearly two years, FEMA officials suppressed internal warnings that there were health problems among 300,000 trailer occupants -- what lawmakers later called an "official policy of premeditated ignorance" -- before declaring that trailers should be abandoned in early 2008.

When they finally conducted tests, officials found formaldehyde levels in trailers five times greater than the average in most modern homes, and in some cases 40 times greater.

Formaldehyde, an industrial chemical widely used in wood, housing products and many other applications, including treatment for some clothing, can cause nasal cancer and worsens respiratory problems, studies show.

The mass sale came four weeks after a federal judge lifted a ban on the sale of some trailers, which are part of litigation brought by 40,000 former Katrina occupants against FEMA and the manufacturers.

FEMA officials "are shoveling the whole thing under the carpet to make it go away," said Scott E. Pepperman, executive director of the National Association of State Agencies for Surplus Property.

For the future, FEMA has set tight formaldehyde limits on new trailers it buys and overhauled disaster contracts to strengthen quality control.

But the U.S. Centers for Disease Control and Prevention still have not issued a contract for a long-promised study of the health effects on children who lived in trailers; no binding safety standards for formaldehyde in housing have been set; and FEMA is still fleshing out how it would manage housing in a future Katrina-scale catastrophe.

Aaron Mortrud, general manager of Greenlawn Homes of Columbus, Ohio, said the family-owned commercial real estate company was FEMA's single high bidder, offering $27 million for just more than 15,000 units stored in Hope, Ark. -- or $1,830 on average.

Formaldehyde in trailers is a "non-topic" among consumers, he said, adding that responsible sellers have all the required paperwork and disclosures. Buyers "don't ask about it any more than they do with cars or brand-new pairs of pants they wear," Mortrud said.

He said the low price reflects the poor quality of trailers. However, the bulk lots include more valuable manufactured homes, which have few contamination problems and are particularly sought by strapped families.

He has already lined up buyers for virtually all units -- retailers that he said could probably resell mobile homes for $15,000 to $21,000, or about a tenfold markup. That price is still cheap compared with new, $45,000 mobile home models that Mortrud sees.

The windfall will keep him from laying off 30 workers. "For us and probably for many, many other people," Mortrud said, "it's the difference between staying in business and not being in business."

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